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Economic Impact Of WSD Outbreak

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Question:

Discuss about the Economic Impact of WSD Outbreak.
 
 

Answer:

Introduction:

Australian Prawn market plays a significant role in the economy as well as society of Australia. The current outbreak of White Spot Disease (WSD) has immensely affected the prawn market. Millions of prawns have been dumped in three days due to the sudden crisis of WSD. Moreover, the government has been forced to ban the import of green prawn, which has been rumored to be major cause of this outbreak. The current assessment would be focused on identifying the economic impact of this sudden outbreak of WSD on the overall Australian Prawn industry. In addition to that, this particular study would also concentrate on analyzing various economic developments occurred from this sudden crisis. The impact on the consumer as well as producer would be major focus of this study. Furthermore, the study would be able to suggest most helpful government intervention strategies for managing the market predicament.

Critical Overview of the Queensland Prawn Market:

The Australian Prawn farming industry is one of the most attractive and crucial livelihood for Australian people. Currently, the industry produces more than 5000 tons of prawns annually, which accounts for nearly $87.7 million. The Australian Prawn Industry is based mainly in Queensland on 12 hatcheries as well as 900 hectares of ponds. In addition to that, the Australian Prawn Industry is also noted to provide more than 300 jobs for the Australian local populace (Emery et al., 2017). Although, the prawn industry is considered as the volumetric producers, the productivity of this industry yields more than 9000 kg / hectare. The entire prawn industry is located in two major states of Australia, which are Queensland as well as New South Wales.

It has been observed that environmental as well as economic contribution of the prawn farming is highly substantial to the local community. According to Guy, McIlgorm and Waterman, (2014), the Australian Prawn farming is considered as one of the largest Australian aquaculture sectors. The farmers has created the Association that addresses their issue and create the necessary linkages with related sectors including government officials, researchers, technologies, exporters, retailers, finance sector as well as infrastructure suppliers.

It has been observed that the Australian Prawn market has been noted to farming three major endemic species of prawn. These prawns are mentioned below:

  • The Black Tiger Prawn
  • The Banana Prawn
  • The Kuruma Prawn

Despite the small size of Australian prawn farms, it leads the world market. The major reason of this advancement is continuous government investment in research and development (Gourguet et al., 2014). Currently, it has been observed through international scale of classification that majority of the Australian farms are intensive farms.

 

Economic market analysis

Extensive study of the Australian Prawn Market indicates that the prawn market is perfectly competitive market. According to the traditional sense the perfect market is the structure where every firm operates their business by selling identical products (Johns et al., 2016). In addition, in the perfectly competitive market the firms are noted to be price takers instead of controller of market price of their product. The firms in the perfectly competitive market also observed to have very small market share. In addition to that, the buyers also have the necessary information regarding the product and price in the perfectly competitive market (Koschker & Möst, 2016). Moreover, in the perfectly competitive market the entry and exit of new organizations are not restricted at all.

There are numbers of evidence that can be produced in support of the above argument. First of all, although the prawn market has different varieties of prawn, the general consumers cannot distinguish between them. The differences between three major prawns are quite limited (Gourguet et al., 2016). At the same time, the prawn farms cannot control the price as their supply size of prawns is similar to the others and therefore can easily be considered as the price takers. In addition to that, being an equally distributed and supported industry every farm has similar size and production capabilities. Therefore, they all have relatively small market share. The price of the prawn is informed to the buyers all the time. Association plays a significant role in maintaining the communication with the customers (Rostamian, 2014). Therefore, it can be assumed that the Australian Prawn market fulfill the criteria of being perfectly competitive market.

In this context, before the WSD outbreak the Prawn market was in equilibrium, as the volume of supply supported the demand quite effectively. However, after the outbreak of WSD the farm owners had to dispose large numbers of prawns. It has been identified that the amount of disposed prawns accounted for millions of dollars. The disposal of these large amount of prawns coupled with ban on prawn import has significantly increased the demand of prawn in the Australian Market, which has effectively shifted the price from equilibrium (ABC Rural, 2017).

Let’s assume the original equilibrium price was P1, supply curve was S1 and the quantity was Q1. The immediate stock disposal after the WSD outbreak has significantly shifted the supply curve from S1 to S2. As identified from the study that Australia produces 20000 tons of prawns whereas it used to import 30000 tons of prawns from outside. Moreover, In this context, it is evident that the disposal of 25 millions of white spotted prawns will damage the supply curve significantly (Tham & Luo, 2015). It is assumed that more than half of the supply size has been decreased dramatically. Now the price has been increased from P1 to P2 after the outbreak of WSD. It has been also observed that the price of prawns is raised with an immense speed. The price hike was around $10 per kilogram within a week. The scenario has been depicted in the above figure (ABC Rural, 2017).

 


Considering the Law of Diminishing Marginal Utility, we can identify that D (Demand) = MB (Marginal Benefit). At the same time, considering the Law of Diminishing Returns, we can discern that S (Supply) = Marginal Cost. In this context, we can confirm from the above Figure 2 that the total surplus, i.e. sum of consumer surplus and producer surplus is maximized. Therefore, we can effectively conclude that the market is still efficient as there is no deadweight loss. We can easily observe that the all perfectly competitive markets are efficient as producer surplus and consumer surplus is maximized and there is no dead weight loss (Blomquist & Simula, 2015).

It can be easily observed from the above figure that the consumer surplus as well as producer surplus has decreased due to the movement of supply line in the graph. The change would evidently include greater impact on the consumers and producers. In this context, let’s assume price has shifted from P1 to P2. The budget line has been in tangent of the I1, i.e. the utility curve before the crisis of WSD. After the outbreak of WSD the utility curve shifted from I1 to I2. The following figure effectively shows that the budget line is in tangent of utility curve I2 in a higher price level as well as at smaller quantity of prawns (Oliveira-Castro, Cavalcanti & Foxall, 2015). Therefore, it can be easily understood that the utility level of the consumers have been significant reduced due to the outbreak of the shift.

The contemporary scenarios also indicate towards the fact. The stock of the prawn in Australian market has been noted to run out rapidly. It is assumed that in several days the prawn stock will be empty. It has been also identified that despite of rising prices the customers are not being able to have sufficient quantity of prawns in accordance with their satisfaction.

On the other hand, if we assume that average production fixed cost is TFC and the variable cost is TVC. Then the TC (total cost) = TFC + TVC. Now as the outbreak of WSD hit the Australian market the quantity of the production dropped significantly. It has been observed that despite of investing normal production cost the output was null. The farmers had to dispose the diseased prawn so that the disease could not be spread in the market. Therefore, it can be easily assumed that the farmers have been undergone through a tremendous loss. The sources support the evidence by reporting 25 millions of loss from four major farms in Queensland (ABC Rural, 2017).

 

Government’s Intervention strategies:

In this context, it has been identified that the government has a significant role in the current scenario. It is highly necessary for the government to intervene in this huge demand of prawns as well as insufficient supply. It has been identified from the above market analysis that the farmers have dealt with greater amount of loss. This kind of high loss cannot be compensated by them (Byrom, Lawley & Clements, 2016). Therefore, the government needs to provide nece4ssary subsidies to the farmers so that they can minimize the loss. This kind of high amount of loss would eventually force them to stop the production which would be more catastrophic in the current situation. The lack of production will further decrease the supply and increase the demand in a significant manner. Therefore, the subsidy would be most preferred choice from the government to rejuvenate the economy once again.

As identified from the above assessment study it has been observed that the lack of supply has created this kind of huge economic crisis in the Australian Prawn Market. If the supply would get normalized the demand as well as price of the prawn would get normal. Therefore, the market would get to the prior position once again. However, the Australian Government has put ban on the import of prawn from outside. The major reason of the ban is identifying the source of WSD at the first place as it was being rumored that the WSD has been came from the imported prawn. In this context, the government must seek a secure supply chain of prawn. In this aspect, government may also critically check every imported prawn for possible disease. This way the government would also ensure that any diseased prawn is not coming in Australia through the supply line. At the same time, the Australian market would get equilibrium.

 

Conclusion:

The above analysis has been quite efficient to identify the economic impact of WSD outbreak in Australian Prawn Industry. First of all, the study has provided necessary overview of the entire prawn industry in Australia. It has been disclosed that despite of the small size, the Australian prawn market is the leading market throughout the world. The study has significantly identified the nature of Australian Prawn market as perfectly competitive market. It has been also able to provide necessary justification of the argument. The study has also effective analyzed the economic impact of WSD outbreak with the help of various economics theories. These theories have been able to discern the impact of this crisis on the customers as well as producers. The study has also used relevant models to better depict the current scenario. The critical sources have been used to justify the argument at every given point of the study. In other words the study has successfully disclosed the current scenario in a critical and precise manner. Furthermore, the study has been also able to provide necessary suggestions for the government interventions, which will help the market to attain its earlier position.

 

Reference List:

ABC Rural. (2017). Another prawn farm tests positive for white spot disease. [online] Available at: https://www.abc.net.au/news/2017-02-06/white-spot-disease-spreads-to-sixth-queensland-prawn-farm/8243640 [Accessed 7 Apr. 2017].

ABC Rural. (2017). Prawn industry in crisis mode as disease spreads. [online] Available at: https://www.abc.net.au/news/2017-01-04/prawn-virus-white-spot-disease-spreads-queensland/8161410 [Accessed 7 Apr. 2017].

ABC Rural. (2017). White spot outbreak a 'wake-up call' for Australian biosecurity, as prawn farmers blame imports. [online] Available at: https://www.abc.net.au/news/2016-12-23/qld-prawn-farmers-blame-white-spot-outbreak-on-imported-prawns/8144876 [Accessed 7 Apr. 2017].

Blomquist, S., & Simula, L. (2015). Marginal deadweight loss with nonlinear budget sets. Mimeo.

Byrom, D., Lawley, M., & Clements, M. (2016). 13 Barriers to supply chain integration in the Australian seafood industry. A Stakeholder Approach to Managing Food: Local, National, and Global Issues, 186.

Emery, T. J., Gardner, C., Hartmann, K., & Cartwright, I. (2017). Incorporating economics into fisheries management frameworks in Australia. Marine Policy, 77, 136-143.

Gourguet, S., Thebaud, O., Dichmont, C., Jennings, S., Little, L. R., Pascoe, S., ... & Doyen, L. (2014). Risk versus economic performance in a mixed fishery. Ecological Economics, 99, 110-120.

Gourguet, S., Thébaud, O., Jennings, S., Little, L. R., Dichmont, C. M., Pascoe, S., ... & Doyen, L. (2016). The cost of co-viability in the Australian northern prawn fishery. Environmental Modeling & Assessment, 21(3), 371-389.

Guy, J. A., McIlgorm, A., & Waterman, P. (2014). Aquaculture in Regional Australia: Responding to trade externalities. A Northern NSW case study. Journal of Economic & Social Policy, 16(1), 115.

Johns, C. M., Johns, C. M., Kimber, N., Kimber, N., Howieson, J., Howieson, J., ... & Lawley, M. (2016). Evaluating the outcomes of VCA-led improvement projects: a case study of an Australian prawn fishery. British Food Journal, 118(12), 2997-3011.

Koschker, S., & Möst, D. (2016). Perfect competition vs. strategic behaviour models to derive electricity prices and the influence of renewables on market power. OR spectrum, 38(3), 661-686.

Oliveira-Castro, J. M., Cavalcanti, P. R., & Foxall, G. R. (2015). What do consumers maximize?. The Routledge Companion to Consumer Behavior Analysis, 202.

Outbreak.gov.au. (2017). Outbreak White spot disease. [online] Available at: https://www.outbreak.gov.au/current-responses-to-outbreaks/white-spot-disease [Accessed 7 Apr. 2017].

Rostamian, H. (2014). Management strategies for controlling diseases in shrimp aquaculture.

Tham, C. K., & Luo, T. (2015). Quality of contributed service and market equilibrium for participatory sensing. IEEE Transactions on Mobile Computing, 14(4), 829-842.

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